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With Wages on Ballots, Restaurateurs Do the Math

Lyle Nalivka, owner of the Acoma Restaurant and Lounge in Butte, Mont., said a minimum wage rise might lead to shift cuts and layoffs.Credit
Lynn Donaldson for The New York Times

If people in Montana vote to raise the minimum hourly wage on Tuesday, Lyle Nalivka, a restaurant owner, says his waiters will earn more than he does some days — and a few of them will very likely lose their jobs.

Mr. Nalivka, 54, says customers at his Acoma Restaurant and Lounge in Butte like big portions and they cannot pay Manhattan prices for dinner. The wage proposal is pegged to inflation, he points out, meaning the cost of cappuccino in New York and Los Angeles would affect how much he pays his waiters each year. Generally, they make about four times the minimum wage, including tips, Mr. Nalivka said.

In addition to Montana, five other states — Arizona, Colorado, Missouri, Nevada and Ohio — have minimum wage measures on the ballot, with plans for annual adjustments for inflation. Small businesses, and in particular restaurants, are concerned that they will be the hardest hit. Restaurants, which have an unusually high failure rate — according to a recent Ohio State University study, 60 percent fail within three to five years — say they will have to pass on the costs to the consumers, reduce their staffs, or both.

Some economists assert that businesses can afford the increases and applaud the trend of states rising above the federal hourly minimum of $5.15 (21 states already have higher minimum wages). But ask most restaurateurs and they respond with dismay about how they will make ends meet.

For waiters and other workers who receive tip income, the federal hourly wage is just $2.13, although some states require more. The Labor Department defines these “tipped employees” as those who customarily and regularly receive more than $30 a month in tips. The tips are counted as wages.

Montana does not allow the so-called tip credit and waiters must be paid at least $5.15 an hour — for now. They will receive a dollar an hour more next year, if the voters decide to give the lowest-paid workers a raise.

“My business depends on repeat customers. It’s not like I can gouge a tourist,” Mr. Nalivka said. “I think if I can’t maintain business through modest price increases, it will cost jobs.”

If voters approve the measures, three states — Nevada, Ohio and Colorado — will enshrine the changes in their state Constitutions; opponents say constitutions are not where economic policy should be set because making adjustments will be difficult and time-consuming. The Colorado and Ohio proposals would increase the minimum wage to $6.85 an hour, or to about half that for employees who receive tips. Arizona’s minimum wage would rise to $6.75, but the minimum for employees who receive tips would be $3 less. Missouri’s would rise to $6.50, or half that for employees who are tipped.

At least restaurateurs in those states get to vote on the wage increases, a Los Angeles restaurateur, Jacqueline Koster, says. Beginning Jan. 1, members of the bar staff at her popular Hollywood bistro, La Poubelle, will be paid $7.50 an hour, up from $6.75. And starting Jan. 1, 2008, Ms. Koster will pay them $8 an hour, under a bill signed into law in September by California’s governor, Arnold Schwarzenegger. The governor vetoed similar bills in the past because they were indexed to inflation.

“I would have preferred to vote,” said Ms. Koster, an immigrant from France who believes that California’s wage increases will encourage more illegal immigration. “I would have voted no. I can’t raise prices, because the people won’t come. They can’t afford to pay $40 for the steak.” The aged New York strip at La Poubelle costs $27 and the filet mignon is $30; the restaurant serves only organic meat.

Dylan Bethge, 36, owner of Portland’s Restaurant and Wine Bar in Phoenix, says he does not think restaurants in Arizona will be affected much.

“I haven’t looked at it long term. I don’t think it’s a big issue,” Mr. Bethge said. “I can’t see it being raised that much higher than is acceptable to us. Our alternative would be to raise prices accordingly, if we had to.”

Photo

Sasha Brooks working at the Acoma. Montana does not allow a tip credit, which would lower the minimum wage for workers who get tips.Credit
Lynn Donaldson for The New York Times

In Las Vegas, Mimmo Ferraro, 28, owner of Ferraro’s, an upscale Italian restaurant known for its osso buco, says the wage increases would hurt the most in increased payroll taxes, because the higher the payroll, the more must be paid to the government. His family’s restaurant has been in business for 21 years and has no intention of letting any waiters go, he said. But it will most likely have to raise prices, and will face the additional cost of printing new menus.

“For a small-business owner off the Strip, it’s difficult enough to be successful in business as it is. If payroll goes up, taxes go up,” Mr. Ferraro said. “The money has to come from somewhere. So it will hurt the customer.”

The National Restaurant Association has been aggressively lobbying against increasing the minimum wage, which was established federally in 1938 and was last raised in 1997.

Tom Foulkes, vice president for state relations and grass roots for the association, says the ballot measures are in swing states, where Democrats are pushing for the minimum wage increases.

“This is not a homegrown effort. This is a nationally coordinated campaign,” he said. “It is no mistake that the six states where these ballot initiatives are, these are high-profile political campaigns. The issue is looking to influence the outcome of the elections.”

Alan B. Krueger, an economist at Princeton, studied the fast-food industry in New Jersey and Pennsylvania after New Jersey raised its wages and Pennsylvania did not. He concluded that the threat of lost jobs did not materialize. Mr. Krueger says restaurants always fear mandated wage increases, but rarely go out of business as a result of them and restaurant employment does not decrease.

In states like Montana, Mr. Krueger says, it is plausible that some restaurants will move away from a tip structure altogether, to make price increases more palatable to customers.

“I think the experience has been that it’s mostly crying wolf, I would say mostly by the restaurant associations than by the actual restaurant owners,” Mr. Krueger said. “The same thing happened in the ’80s when the federal wage hadn’t increased for a long time and the states stepped in to act.”

But Mr. Nalivka, the Montana restaurateur, says he is not crying wolf. To cope, he says, he will cut shifts and most likely let a few people go. A waitress losing a lunch shift will most likely not benefit from the $1-an-hour raise, because she will be working less. He also believes the pay increases will encourage his employees who do not receive tips to ask for more pay.

“I very much think it’s a political issue, not a practical issue,” Mr. Nalivka said. “I think it’s something that the Democrats are using to oust the Republicans.”

He thinks the voters will vote yes, because giving the lowest-paid members of society a raise is a feel-good issue. But waiters make good money, he says, and he thinks Montana should have a tip credit.

“Even the dishwashers are above minimum wage,” he said. “Of course, when the servers get a raise, they’re going to want a raise, too. The cooks are all going to want a bump, and the cooks get tipped, too.”

“We’ve just gone through a smoking ban, we’ve just gone through open-container laws, tougher D.U.I. laws,” Mr. Nalivka said. “The bar and restaurant business has been taking a lot of hits.”

A version of this article appears in print on , on page C4 of the New York edition with the headline: With Wages on Ballots, Restaurateurs Do the Math. Order Reprints|Today's Paper|Subscribe